With the rise of streaming services, Disney has been at the forefront of the industry. In the second quarter, Disney managed to nearly turn a profit in its streaming units for the first time, losing only $18 million between Disney+, Hulu, and ESPN+. This is a significant improvement from the $659 million loss the year before. Stripping out ESPN+, Disney+ and Hulu even managed to make $47 million in the quarter, a substantial improvement from the $587 million loss in the previous year. This signals a major shift in the way Disney is approaching its business model, focusing more on streaming as a viable money-making engine compared to traditional cable TV.
The shift towards streaming has been a long time coming for major legacy media companies like Disney, Paramount Global, Warner Bros. Discovery, and Comcast’s NBCUniversal. By creating their own subscription streaming services, these companies are preparing for a future where streaming overtakes cable TV as the primary source of revenue. While this transition has not fully taken place yet, the recent financial results suggest that this moment is quickly approaching. Disney’s decision to make ESPN available outside of the traditional cable bundle is a clear indication of this shift. With the launch of a skinnier bundle of linear cable channels and the forthcoming ESPN streaming service, Disney is adapting to the changing landscape of media consumption.
In the second quarter, Disney saw a mixed bag of results. While ESPN’s revenue rose by 3% to $4.21 billion, operating income dropped by 9% to $799 million. This decline was attributed to a drop in cable subscribers and higher programming costs associated with the College Football Playoff. On the other hand, the decline in revenue and operating income for Disney’s other linear networks like ABC, Disney Channel, FX, National Geographic, and Disney Junior was even more alarming. Linear network revenue fell by 8% to $2.77 billion, with operating income slumping by a significant 22% to $752 million. This decline in traditional TV highlights the urgency for Disney to make a successful transition to streaming.
Despite the challenges faced by Disney in the transition to streaming, the company remains optimistic about the future. Disney has been preparing for this moment for years and believes that streaming will become profitable in the fourth quarter. The company anticipates streaming to be a significant future growth driver, with further improvements in profitability expected in fiscal 2025. The big question looming is whether Disney’s investors will embrace this new reality. The success of Disney’s streaming execution in the coming years, as well as the leadership of the yet-to-be-named successor to CEO Bob Iger, will determine the company’s future success in the streaming industry.
Disney’s recent financial results indicate a positive shift towards streaming profitability. The company’s focus on adapting to the changing media landscape and investing in streaming services like Disney+, Hulu, and ESPN+ bodes well for its future success. The transition away from traditional TV towards streaming may have its challenges, but Disney’s strategic moves and long-term vision position it well for the future of entertainment consumption.
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